Accounting by Manufacturing Companies

The accounting cycle is the same in a manufacturing company, merchandising company, and a service company. Journal entries are used to record transactions, adjusting journal entries are used to recognize costs and revenues in the appropriate period, financial statements are prepared, and closing entries are recorded. Raw material purchases are recorded in the raw material inventory account if the perpetual inventory method is used, or the raw materials purchases account if the periodic inventory method is used. For example, using the periodic inventory method, the purchase of $750 of raw materials on account is recorded as an increase (debit) to raw materials purchases and an increase (credit) to accounts payable.
General Journal

Date

Account and Title Description

Ref.

Debit

Credit

20X0

May 27

Raw Materials Purchases

750

Accounts Payable—TLM Co.

750

Purchase materials from TLM

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The entry to record payroll would include an increase (debit) to direct labor instead of wages expense and an increase (credit) to the withholding liability account and wages payable. To record $1,000 wages for T. Kaschalk, the entry would be:
General Journal

Date

Account and Title Description

Ref.

Debit

Credit

20X0

May 31

Direct Labor

1,000

Federal Income Taxes Payable

150.00

FICA Taxes Payable

76.50

Credit Union Payable

50.00

Wages Payable

723.50

Record TK wages

The factory building depreciation of $9,500 is classified as a manufacturing cost. It is recorded with an increase (debit) to factory depreciation and an increase (credit) to accumulated depreciation—building.
General Journal

Date

Account and Title Description